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Brokers trading Japanese equities enjoyed the immediate benefits of a systems upgrade by the Tokyo Stock Exchange earlier this year as the cost of trading domestic stocks fell by over third, according to broker research.

The TSE, which in December last year was fined for its failure in 2005 to cancel a “fat finger” order by broker Mizuho Securities, launched its next-generation trading platform Arrowhead in January this year.

The upgrade enabled TSE members to trade higher volumes more quickly and provided immediate benefits, according to research by broker ITG which said the cost of trading Japanese stocks fell 36.7% in January compared to the previous month.

The fall in the cost of trading is attributed by ITG to the collapse in trading spreads on the Japanese exchange, a signal of an increasingly competitive market.

Average spreads – the difference between the bid and offer prices for a particular stock – decreased 15% in January as the value of trading increased 16.5%, to $18bn (€13bn).

The average size of individual trades – another key indicator of an efficient, electronic market – also fell dramatically in January, according to ITG, with the number of shares per trade falling a third to 400 shares per individual transaction.

The research is a fillip for the TSE, which has been working for the past three years to overhaul its legacy trading systems and rebuild the firm’s reputation after it was criticised following its failure to cancel an erroneous trade in December 2005.

TSE member Mizuho Securities mistaken sent the exchange an order to sell 610,000 shares for ¥1 rather than one share for ¥610,000 but the exchange failed to cancel the trade despite repeated requests by Mizuho, which lost an estimated ¥40.7bn (€285m) as a result.

Some of this amount was returned to Mizuho by rivals when the nature of the trade came to light but the broker filed a lawsuit in October 2006.

A Tokyo district court ruled in December last year that the exchange had to pay Mizuho ¥10.7bn (€85m) compensation for the losses its member incurred.

Arrowhead brings the Japanese market in line with international peers such as NYSE Euronext, Nasdaq OMX and the London Stock Exchange, which have been investing heavily in their systems over recent years to make their markets more competitive.

The TSE’s regional rival Hong Kong Exchanges and Clearing last week set up a division focused specifically on IT “to reflect the increasing importance of market systems and platforms to HKEx’s operations and growth”.

The Hong Kong exchange said last week it had changed its organisational structure and reshuffled its senior management to prepare the market for “intense competition from exchanges and trading platforms around the world”.